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Cash Dilution in Illiquid Funds

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Author Info
Everts, Martin

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Abstract

Cash dilution, the effect of performance reduction through cash, exists in almost every illiquid fund. This article provides a brief overview of the problems of cash dilution in illiquid private equity fund of funds, a formula for the calculation of the cost of cash dilution, two possible solutions for the reduction of cash dilution (namely the over-commitment strategy and a formula to calculate the optimal degree of investment in other assets), an evaluation of the effect of cash dilution in private equity fund of funds, and an evaluation of the usefulness of the over-commitment strategy.

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File URL: http://mpra.ub.uni-muenchen.de/4655/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4655.

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Date of creation: Apr 2002
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Handle: RePEc:pra:mprapa:4655

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Related research
Keywords: Illiquid Funds Private Equity Cash Dilution Cash Drag Over-Commitment Performance Venture Capital Buyout Mezzanine Debt Investment Strategy Cash Flow Pattern Take-Down Pattern Distribution Pattern

Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August. [Downloadable!] (restricted)
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  2. Gompers, Paul A., 1998. "Venture capital growing pains: Should the market diet?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 1089-1104, August. [Downloadable!] (restricted)
  3. George W. Fenn & Nellie Liang & Stephen Prowse, 1995. "The economics of the private equity market," Staff Studies 168, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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This page was last updated on 2008-7-25.

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